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Equities Funds in Favor in Early ‘13

Morningstar says that investors added $86.5 billion to long-term open-end mutual funds in January, with 72 of 93 open-end categories recording inflows. When these flows are combined with $28.6 billion of inflows for exchange-traded funds, it was “by far the largest one-month inflow on record,” the Chicago-based research firm says. All asset classes and each of the top-10 open-end fund providers saw long-term fund inflows.

“Market observers have been waiting for a sign that the multi-year trend of investors buying fixed income while selling U.S. stocks would reverse in a so-called ‘great rotation,’” said Mike Rawson, fund analyst on Morningstar’s passive-funds research team,” in a statement.

“Inflows of $15.5 billion for U.S.-stock funds, the largest monthly intake since 2004, and the first month of inflows in the last 23 for active U.S.-stock funds, support this development,” Rawson explained. “However, U.S.-stock funds experienced slower organic growth than any other major asset class in January, and seasonal and one-time factors such as lump-sum contributions to retirement accounts and acceleration of dividend payments indicate that claims of a paradigm shift in investor behavior may be premature.”

Still, according to TrimTabs Investment Research, an all-time record $77.4 billion flowed into U.S.-listed equity mutual funds and exchange-traded funds in January. In addition, Strategic Insight says that it projects bond fund inflows to persist in the coming months, as investors holding $10 trillion of cash slowly search for income opportunities elsewhere.

Strategic Insight, a business intelligence provider to the fund industry, reports that approximately $51 billion, or more than half, of the January net flows went into stock and balanced mutual funds, marking the largest monthly amount in more than a decade. Additional net inflows went to stock ETFs, the company said. These figures, the company said, suggest that U.S. investors are finally re-entering the stock market through mutual funds.

According the research group Lipper, conventional equity mutual funds attracted $5.8 billion in net inflows in the last week of January, bringing their four-week total to $20.7 billion. This represents their largest four-week total since April 2000.

Also in January, net inflows to bond funds were estimated to exceed $40 billion, significantly above 2012’s average monthly flows to bond funds of $27 billion, according to Strategic Insight, based on data provided by the Investment Company Institute and proprietary surveys of leading distributors and fund managers.

Strategic Insight, a business intelligence provider to the fund industry, reports that approximately $51 billion, or more than half, of the January net flows went into stock and balanced mutual funds, marking the largest monthly amount in more than a decade.

Additional net inflows went to stock ETFs, the company said. These figures, the company said, suggest that U.S. investors are finally re-entering the stock market through mutual funds.

“In recent years, stock investors watched the rising stock market with either disbelief or regret. January flows data suggests that postelection assurance of political stability and tax rates combined with rising home prices, falling unemployment and fading memories of 2008 have helped investors overcome, at least for now, a state of investment anxiety,” said Avi Nachmany, SI’s director of research, in a statement.

David Santschi, CEO of TrimTabs, noted in a statement, “Investors kicked off the New Year in a highly exuberant mood. The inflow in January smashed the previous record of $53.7 billion in February 2000, which was just before the technology stock bubble burst.”

These record inflows “should make contrarians very nervous,” noted Santschi. “Big inflows from fund investors have historically coincided with market tops. Note that four of the top ten biggest inflows were in early 2000.”